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United States Government Accountability Office:
GAO:
Report to Congressional Requesters:
September 2011:
Evolved Expendable Launch Vehicle:
DOD Needs to Ensure New Acquisition Strategy Is Based on Sufficient
Information:
GAO-11-641:
GAO Highlights:
Highlights of GAO-11-641, a report to congressional requesters.
Why GAO Did This Study:
The Department of Defense (DOD) and the National Reconnaissance Office
(NRO) plan to spend about $15 billion for launch services from fiscal
year 2013 to fiscal year 2017 through DOD’s Evolved Expendable Launch
Vehicle (EELV) program. The program launches satellites for military,
intelligence, civil, and commercial customers. In 2009, DOD and the
NRO decided the program’s business model needed improvement, and
initiated studies to determine the best approach. The studies
addressed potential business models, cost reductions, and the nation’s
assured access to space. Given expected changes to the EELV
acquisition strategy, GAO was asked to (1) determine whether DOD has
the knowledge it needs to develop a new EELV acquisition strategy, and
(2) identify issues that could benefit future launch acquisitions. To
address these questions, GAO reviewed launch studies, a supplier
survey, and interviewed DOD and other officials.
What GAO Found:
DOD officials believe the launch industrial base is unstable and plan
to implement an acquisition strategy they believe will help stabilize
it. The leading proposal would commit the government to a block buy of
eight common booster cores—the main component of a launch vehicle—each
year, for a 5-year term. However, this approach may be based on
incomplete information and although DOD is gathering data that it
needs as it finalizes the new acquisition strategy, some critical
knowledge gaps remain. DOD expects the strategy to be finalized in the
next few months, but this may not allow DOD sufficient time to
leverage the knowledge it continues to gain as it develops the
strategy. DOD analysis on the health of the U.S. launch industrial
base is minimal, and officials continue to rely on contractor data and
analyses in lieu of conducting independent analyses. Additionally,
some subcontractor data needed to negotiate fair and reasonable prices
are lacking, according to Defense Contract Audit Agency (DCAA)
reports, and some data requirements were waived in 2007 in exchange
for lower prices. Mission assurance comprises numerous activities to
ensure launch success, but DOD has little insight into the sufficiency
or excess of these activities. The expected block buy may commit the
government to buy more booster cores than it needs, and could result
in a surplus of hardware requiring storage and potentially rework if
stored for extended periods. Also, DOD is gaining insight into the
rise in some engine prices, expected to increase dramatically in the
near term, but it is unclear how this knowledge will inform the
expected acquisition approach or subsequent negotiations. Program
decisions at the National Aeronautics and Space Administration (NASA)
later this year could impact EELV engine prices, but DOD may lock in
higher prices before it fully understands NASA’s plans. Further, DOD
intends to allow companies other than the current sole-source
contractor to compete for EELV launches as they prove vehicle
reliability, but DOD is still developing criteria to facilitate this
competition. A recent memorandum of understanding between the Air
Force, NRO, and NASA committed to publish a coordinated certification
strategy by July 31, 2011, but did not meet that date.
Broader issues exist as well, regarding the U.S. government’s
acquisition of, and future planning for, launch services—-issues which
GAO believes should be addressed, given that they could reduce launch
costs and assure future launch requirements are met. For example,
* Federal agencies-—like the Air Force, NRO, and NASA-—could more
closely coordinate their acquisitions of launch services, and recently
committed to do so, but many details are yet to be determined.
* Resource planning focused on launch technology development could
inform the next generation of launch vehicles particularly with
respect to engines, for which the United States is partially reliant
on foreign suppliers.
Policymakers could benefit from additional insight into these issues,
but it is not clear that DOD will address these issues in its upcoming
strategy.
What GAO Recommends:
Among other things, GAO recommends DOD assess engine costs and mission
assurance activities, reassess the length of the proposed block buy,
and consider how to address broader launch acquisition and technology
development issues. DOD generally concurred with the recommendations.
View [hyperlink, http://www.gao.gov/products/GAO-11-641]. For more
information, contact Cristina Chaplain at (202) 512-4841 or
chaplainc@gao.gov.
[End of section]
Contents:
Letter:
Background:
DOD Gaining Knowledge as It Finalizes a New EELV Acquisition Strategy,
but Critical Gaps Remain:
Addressing Other Issues Could Benefit Future Launch Acquisitions:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Comments from the Department of Defense:
Appendix III: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Studies Informing New EELV Acquisition Strategy and Issues
They Addressed:
Table 2: Planned vs. Actual EELV Launches, Fiscal Years 2005-2009:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
September 15, 2011:
The Honorable Bill Young:
Chairman:
Subcommittee on Defense:
Committee on Appropriations:
United States House of Representatives:
The Honorable Norm Dicks:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
United States House of Representatives:
The Department of Defense's Evolved Expendable Launch Vehicle (EELV)
program is the primary provider of launch vehicles for U.S. military
and intelligence satellites, as well as some civil and commercial
satellites. The Department of Defense (DOD) and the National
Reconnaissance Office (NRO) plan to spend about $15 billion to acquire
launch services from fiscal year 2013 to fiscal year 2017; however,
the life-cycle costs for the program are unknown. In 2009, the
Commander of Air Force Space Command and the Director of the National
Reconnaissance Office (NRO) determined that the current approach for
acquiring EELV launch vehicles was likely not the best business model
and decided that a new acquisition strategy needed to be developed. In
March 2011, the Secretary of the Air Force created a new executive
position, the Program Executive Officer (PEO) for Space Launch,
responsible for, among other things, spearheading the effort to
finalize the new EELV acquisition strategy. To inform the strategy,
DOD conducted or commissioned various studies to evaluate alternatives
to the current program structure, assessing the U.S. government's
access to space, analyzing options to leverage commercial and foreign
capabilities, identifying possible cost reductions in the program, and
evaluating the current business model. The new PEO for Space Launch
states he is leading several recent and ongoing efforts to gain
additional knowledge to inform the new acquisition strategy. Given
anticipated changes in the acquisition strategy and potential changes
in the broader launch landscape, you asked us to report on (1) whether
DOD has the knowledge it needs to develop a new EELV acquisition
strategy and (2) issues that could benefit future launch acquisitions.
To address these objectives, we reviewed and analyzed information
contained in five recent launch studies, and interviewed study leaders
or participants in three of the five studies; we analyzed historical
launch data and expected launch vehicle demand, and reviewed past
launch industry studies of the U.S. industrial base. We assessed a
supplier survey conducted by the EELV prime contractor of its
subcontractors. The survey was used by the government to gauge the
health of the U.S. industrial base. We reviewed the survey
questionnaire, comparing methods to GAO sound survey development
practices,[Footnote 1] comparing summary data to the questions asked,
and interviewing and obtaining information and summary data from the
surveyors. We also interviewed or obtained perspectives from launch
officials in various military, intelligence, and civilian government
agencies, as well as the EELV prime contractor and two commercial
launch companies. Through our review of DOD launch studies and other
relevant government and industry reports, our interviews with DOD,
NASA, and contractor officials, and information obtained from NRO, we
identified issues that may be important to current and future
government launch acquisitions.
We conducted this performance audit from September 2010 to September
2011 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives. Additional
details of our scope and methodology are discussed in appendix I.
Background:
DOD began the EELV program in 1995 to provide a new generation of
launch vehicles to ensure affordable access to space for government
satellites. It resulted in two families of commercially owned and
operated launch vehicles--Boeing's Delta IV and Lockheed Martin's
Atlas V. It also includes manufacturing and launch site facilities and
ground support systems. Each family of launch vehicles consists of
medium-, intermediate-, and heavy-lift vehicles.[Footnote 2]
In 1995, DOD awarded contracts to four companies to define EELV system
concepts and complete preliminary system designs. At the end of their
contracts, DOD planned to choose one contractor with the most reliable
and cost-effective design. However, in November 1997, the Office of
the Secretary of Defense (OSD) approved maintaining two contractors,
based on forecasts that growth in the commercial space launch market
would support more than one launch provider and the resulting
competition would translate into lower costs for the government. In
1998, DOD competitively awarded Boeing and Lockheed Martin two firm-
fixed price contracts for Delta IV and Atlas V launch services,
respectively, under the Federal Acquisition Regulation (FAR)
provisions governing commercial items. Under these contracts, DOD had
limited insight into contractor costs because certified cost or
pricing data is not required in the acquisition of commercial items.
[Footnote 3] In 2000, new market forecasts showed a dramatic reduction
in the expected demand for commercial launch services and the robust
launch market upon which the DOD based the EELV acquisition strategy
did not materialize. As a consequence, estimated prices for future
contracts for launch services increased, along with the total cost of
the program. Commercial launch demand forecasts have remained
relatively stable since then, and in recent years seem to indicate a
slight upturn in worldwide demand for commercial launches, but the
expected demand for commercial launches remains significantly lower
than was anticipated near the start of the EELV program.
Current Acquisition Approach:
In March 2005, DOD revised the EELV acquisition strategy to reflect
the changes in the commercial market and the new role of the
government as the primary EELV customer. This revised strategy
provided two contracts apiece--Launch Capability and Launch Services--
to Boeing and Lockheed Martin, the two launch service providers. The
EELV Launch Capability cost-plus incentive fee contract is primarily
for launch infrastructure (such as launch pads and ranges) and labor,
while the EELV Launch Services firm-fixed price mission success
incentive contract is for launch services, including vehicle
production.[Footnote 4]
The new contracts were negotiated under FAR Part 15, which allowed the
contracting officer to obtain certified cost or pricing data from the
contractor for future procurements. As part of the negotiations
process, the government waived certified cost or pricing data for some
requirements. The contracts were awarded using "other than full and
open competition procedures" under Part 6 of the FAR.
In May 2005, Boeing and Lockheed Martin announced plans to form a
joint venture that would combine the production, engineering, test,
and launch operations associated with U.S. government launches of
Boeing's Delta and Lockheed Martin's Atlas launch vehicles. According
to both contractors, the joint venture, named the United Launch
Alliance (ULA), would gain efficiencies and provide the government
with assured access to space at the lowest possible cost by operating
independently as a single company and providing launches on both Atlas
V and Delta IV vehicles. Though the Federal Trade Commission (FTC)
initially opposed the ULA joint venture because of its potential to
limit competition in the launch industry, DOD stated the benefits of
the joint venture to national security outweighed the loss of
competition, and FTC allowed the joint venture to proceed. ULA
officially began operations in December 2006 as the sole source
contractor for EELV. The government, Boeing, Lockheed Martin, and ULA
entered into novation agreements which transferred the obligations and
liabilities of the earlier Boeing and Lockheed Martin contracts to
ULA.[Footnote 5]
Following ULA formation, the Air Force approved a waiver to obtain
certified cost or pricing data from the top 104 Boeing subcontractors
whose purchase orders valued at $650 thousand or more, representing
over $1.4 billion total. The waiver states that Boeing purchased the
materials via commercial items contracts and thus did not require the
data of its subcontractors, and that further, the prices Boeing
obtained in its large-quantity purchase of subcontractor hardware
warranted waiving the data.
In 2007, DOD decided to advance the EELV program from the production
phase to the sustainment phase.[Footnote 6] We reported in 2008 that
this action significantly reduced the program's reporting requirements
to the DOD and the Congress, such as program cost and status
information, limiting its own ability to oversee the program.[Footnote
7] Today, ULA's customers are mostly DOD, NRO, and the National
Aeronautics and Space Administration (NASA) (which negotiates its own
contracts with ULA). With regard to commercial customers, since ULA
began operations in 2006, they represent less than 20 percent of ULA's
business.
According to DOD officials, in late 2009, projected increases in EELV
program costs prompted the Commander of Air Force Space Command and
the Director of the NRO to reconsider the current EELV business model.
They commissioned a team of Air Force and various other DOD
acquisition officials, NRO, and NASA officials, and contractor
personnel--known as the Tiger Team--to study the current approach to
buying government launches, and develop a new acquisition strategy.
Although development of the acquisition strategy shifted from the
Tiger Team to the new PEO for Space Launch in late March 2011, the
Tiger Team study findings and recommendations will likely remain a
cornerstone of the new acquisition strategy.
Planning Underway for New Acquisition Strategy:
Under the current acquisition approach, DOD awards a contract for each
launch vehicle as needed, with a separate contract to cover the ULA's
overhead and facilities cost. DOD does not guarantee a specific number
of launch vehicle orders per year to the contractor, and the quantity
of launch vehicles needed fluctuates. While this business model is
flexible, as launch vehicles are purchased on an as-needed basis, it
has also been costly, and projected costs are rising. Recent DOD
launch studies have raised concerns regarding the unpredictable orders
and low demand for launch vehicle components, and both DOD and ULA
officials say this condition is contributing to rising launch costs,
particularly in the area of engines, a primary launch cost driver. To
address its concerns, DOD is developing a new EELV acquisition
strategy for how it procures launch services and pays for launch
infrastructure costs, officials say to stabilize the industrial base
and to keep costs from escalating more. Based on a memorandum of
understanding, signed on March 10, 2011, between the Air Force, NRO
and NASA, the new EELV acquisition strategy will most likely commit
the Air Force and NRO to buy each year a block of eight launch
vehicles--or more specifically eight common booster cores[Footnote 8]--
and commit to doing so for a 5-year period, instead of buying one
launch vehicle at a time as is currently done. Though the acquisition
strategy is still in development, the first block buy of booster cores
is expected to cover fiscal years 2013 through 2017 and cost around
$15 billion for that period. The PEO for Space Launch indicates the
new strategy is expected to be finalized within the next few months.
DOD recently conducted or participated in five major launch studies
that officials told us were the basis for developing early concepts of
the new EELV acquisition strategy. While the studies spanned a wide
range of launch-related issues, we focused on issues related to the
acquisition of launch services. The studies are:
* The 2010 Launch Broad Area Review was conducted by the Institute for
Defense Analyses for the Air Force to assess the current state of
assured access to space. Issued in January 2010, this report states
that the current practice of buying launch services as needed
threatens the viability of the launch industrial base because the
unpredictable buying tempo leads to inefficient production by
suppliers.[Footnote 9] It recommended maintaining the current mission
assurance focus, and investing in pre-planned product improvement,
such as engine modifications and upgrades.[Footnote 10]
* The EELV Should Cost Review was conducted by Air Force Space Command
(AFSPC) and the NRO for the Secretary of the Air Force, to identify
possible EELV efficiencies and cost reductions.[Footnote 11] The
report was issued in October 2010, and recommended over 80 cost-
reduction initiatives for the EELV program. In February 2011, the
Secretary of the Air Force directed his senior acquisition executives
to integrate the findings from this review with Tiger Team
recommendations (discussed below) in time to award the new launch
contracts. Air Force officials say the Should Cost Review was
valuable, that some of the cost reduction recommendations identified
therein were implemented in recent contract negotiations, and that the
Should Cost Review recommendations will support future contract
actions.
* The Launch Enterprise Transformation Study was conducted by Booz
Allen Hamilton for the Air Force, to evaluate alternatives to the
current EELV program consisting of two launch vehicle lines of
production, or families, while assessing risks, costs, savings, and
the industrial base, among other things. According to Air Force
officials, this study, completed in March 2009, was the impetus for
several of the other launch studies DOD conducted to inform the new
acquisition strategy. This study concluded that mission success should
remain the first priority when making decisions about the launch
enterprise. It recommended that the Air Force adopt a more efficient
acquisition approach, including pursuing a new definition of assured
access to space, and enabling pre-planned product improvements.
* The Resource Management Directive 700 Fiscal Year 2010 Launch Study
was conducted by the Under Secretary of Defense, Office of
Acquisition, Technology and Logistics; the Assistant Secretary of
Defense, Office of Networks Information and Integration; the Office of
the Secretary of Defense, Cost Assessment and Program Evaluation; and
the Air Force Space and Missile Systems Center's Launch and Range
Systems Directorate, to identify and assess alternatives for reducing
launch costs, including options for downsizing to either the Atlas or
Delta lines of launch vehicles instead of producing both, and
leveraging commercial and foreign capabilities. Completed in August
2010, this study stated that a new acquisition strategy should control
cost growth and stabilize the industrial base. It also recommended
investing in post-EELV technologies.
* The Tiger Team Study was co-sponsored by the Commander of AFSPC and
the Director of the NRO, with members from the Air Force, NRO, various
DOD offices, and NASA. The study began in November 2009 to look at
alternative acquisition models for EELV and develop a revised EELV
acquisition strategy. The Tiger Team concluded its formal study period
in August 2010, and its recommendations will likely be a key input to
the expected EELV block buy acquisition strategy, which has yet to be
finalized. We interviewed multiple DOD officials and obtained their
views on what the recommendations included. We received substantive
oral briefings from the study co-leader and participants, but we did
not receive copies of the Tiger Team briefings or supporting
documentation with sufficient time to review them during the course of
our work.
In addition to the issues for which the studies were commissioned,
several of the study reports addressed other topics. Table 1 shows the
broad issues each study addressed.
Table 1: Studies Informing New EELV Acquisition Strategy and Issues
They Addressed:
2010 Launch Broad Area Review:
Competition for EELV Launches: [Check];
EELV Program Structure: [Check];
Launch Costs: [Empty];
Launch Industrial Base: [Check];
Launch Plans & Schedule: [Check];
Launch Site and Range Infrastructure: [Check];
Launch Vehicle Hardware Upgrades: [Check];
Launch Vehicle Mission Assurance: [Check];
Leadership of the Launch Community: [Check].
EELV Should Cost Review:
Competition for EELV Launches: [Empty];
EELV Program Structure: [Empty];
Launch Costs: [Check];
Launch Industrial Base: [Empty];
Launch Plans & Schedule: [Empty];
Launch Site and Range Infrastructure: [Empty];
Launch Vehicle Hardware Upgrades: [Empty];
Launch Vehicle Mission Assurance: [Empty];
Leadership of the Launch Community: [Empty].
Launch Enterprise Transformation Study:
Competition for EELV Launches: [Check];
EELV Program Structure: [Check];
Launch Costs: [Empty];
Launch Industrial Base: [Check];
Launch Plans & Schedule: [Check];
Launch Site and Range Infrastructure: [Check];
Launch Vehicle Hardware Upgrades: [Check];
Launch Vehicle Mission Assurance: [Check];
Leadership of the Launch Community: [Empty].
Resource Management Directive 700 Fiscal Year 2010 Launch Study:
Competition for EELV Launches: [Check];
EELV Program Structure: [Check];
Launch Costs: [Check];
Launch Industrial Base: [Check];
Launch Plans & Schedule: [Empty];
Launch Site and Range Infrastructure: [Empty];
Launch Vehicle Hardware Upgrades: [Empty];
Launch Vehicle Mission Assurance: [Empty];
Leadership of the Launch Community: [Empty].
Tiger Team Study:
Competition for EELV Launches: [Check];
EELV Program Structure: [Check];
Launch Costs: [Check];
Launch Industrial Base: [Check];
Launch Plans & Schedule: [Empty];
Launch Site and Range Infrastructure: [Empty];
Launch Vehicle Hardware Upgrades: [Empty];
Launch Vehicle Mission Assurance: [Empty];
Leadership of the Launch Community: [Empty].
Source: GAO analysis of information on launch studies.
[End of table]
Finally, although no U.S. commercial launch capability for EELV-class
payloads other than Atlas V and Delta IV existed when the previous
EELV acquisition strategy was developed, domestic commercial launch
providers are emerging that may satisfy some of DOD's EELV-class
launch vehicle needs. According to DOD officials, these newer
providers have not yet demonstrated adequate reliability to provide
launches for critical satellites, but may be poised in the future to
compete with the current sole-source EELV provider, ULA. Such
competition could incentivize ULA pricing and efficiencies,
potentially yielding cost savings to the government.
DOD Gaining Knowledge as It Finalizes a New EELV Acquisition Strategy,
but Critical Gaps Remain:
DOD officials are gathering data they expect will fill some knowledge
gaps, but they do not have some of the information they need to make
informed decisions in developing the new acquisition strategy for
EELV. Current plans are to finalize the acquisition strategy later
this year, but efforts to gain additional knowledge are still
underway. Program officials state that a primary reason for revising
the EELV acquisition strategy is to stabilize the launch industrial
base, but analyses performed by DOD on the health of the space launch
industrial base are limited. EELV program officials plan to devise a
new contracting approach as a part of the new acquisition strategy,
but they may have difficulty assessing fair and reasonable prices
given the insufficiency of historical and current contractor cost or
pricing data. DOD also continues to have limited insight into mission
assurance costs, gaining clarity on which, DOD officials say, would be
cost-prohibitive given the integrated nature of these activities.
Additionally, DOD has incomplete data on current and future engine
prices--though Air Force officials are pursuing cost data from
subcontractors who supply engines--which some estimates show doubling
or even tripling in the near term. The proposed block buy of eight
booster cores per year for five years is based on ULA's stated minimum
necessary to maintain a steady production rate, but this number of
cores may not reflect the actual number needed, and could result in a
surplus of booster cores if not used. DOD indicates plans to allow
companies other than the current prime contractor, ULA, to compete for
EELV launches once these companies have proven their reliability, and
although DOD has developed criteria for how to facilitate this
competition in conjunction with the NRO and NASA, DOD officials
indicate the criteria are not yet finalized.
DOD analysis on the health of the launch industrial base is limited:
Program officials, recent launch studies, and the prime EELV
contractor all cite a diminishing launch industrial base as a risk to
the mission success of the program, but DOD analysis supporting this
condition is minimal. Tiger Team leaders asked the prime EELV
contractor and three subcontractors in April 2010 to respond to
questions concerning production rates needed to sustain viability and
achieve cost efficiencies, but independent government analyses on the
health of the space launch industrial base were not performed.
[Footnote 12] A principal source of data cited by DOD is a 2009-2010
survey of about 50 subcontractors out of roughly 3,000, conducted and
analyzed by ULA. According to ULA, the subcontractors surveyed
represent about 80 percent of total subcontract value.[Footnote 13]
EELV program officials say they relied, in part, on the 2009-2010 ULA
supplier survey when assessing the health of the industrial base, in
addition to more detailed information they obtained from the engine
subcontractors. The 2010 Launch Broad Area Review--which DOD officials
cite as support for the proposed block buy approach--also relied, in
part, on the 2009-2010 ULA data and analysis to conclude that the
launch industrial base needs stability.
Although the ULA survey of its supplier base covered the appropriate
topic areas for such a review--for example, financial stability and
production operations--our analysis determined the survey was neither
designed nor administered in a manner consistent with sound survey
methodology practices, and in some cases, survey results presented to
DOD could not be linked back to the survey questions. When ULA sent
its survey questionnaire to its suppliers, it provided a cover letter
to introduce the survey. The survey cover letter goes beyond the
standard acceptable practices of stating the purpose of the survey and
why the respondents' answers are important by including ULA's Chief
Executive Officer's views on the "inefficient" method used by DOD to
acquire launch vehicles and the need for "a relatively stable multi
year demand." It further states that the goal of the survey is to
"justify" a new acquisition strategy "that will enhance our collective
business," but sound survey practices indicate that surveys should not
be perceived as trying to support a particular position. The purpose
of questionnaires is to develop information for an objective
evaluation.
Further, sound survey practices often provide for the use of close-
ended questions with various response options provided to the survey
respondent to facilitate survey response and analysis. In a well-
designed survey, close-ended questions contain a comprehensive list of
options that are mutually exclusive and unbiased. Pre-testing the
survey with expected respondents is important for ensuring the
adequacy of the questionnaire, and in principle, enough people should
be tested in order to obtain a sufficiently valid sample of
participants. ULA pre-tested only a subset of its survey questions
with a single ULA supplier.
In the Overall Risk Profile portion of its survey, ULA asked
respondents to list and rank--in an open-ended format--five short-,
and five long-term risks in maintaining production for ULA. ULA
provided survey participants with four suggested risk items that
supported the ULA survey's stated purpose of justifying a stable
multiyear acquisition approach for the EELV program. According to one
ULA official, "we wanted certain answers." Summary data presented to
DOD shows the potential risk items provided to suppliers by ULA as the
four top-rated risk areas identified by suppliers, without indicating
that the answers were suggested by ULA. This implies that survey
respondents independently raised those areas as their top-rated
concerns. ULA presents these results specifically in its briefing as
support for a multiple year acquisition approach. [Footnote 14]
Despite these and other methodological weaknesses, the data generated
from the survey were neither reviewed nor independently assessed by
DOD officials, according to ULA surveyors. Further, although the
intention of the survey was in part to help the EELV program develop a
new acquisition strategy, ULA told us the program office did not
review the survey design, questions, methods, or analysis, though
program officials said they provided questions for the follow-up
survey. Additionally, although the 2010 Launch Broad Area Review uses
direct language from the ULA supplier survey results, according to ULA
officials, the review participants also did not ask to independently
assess any of the ULA data or analysis, relying instead on ULA's
analysis of its survey data.
ULA's survey findings are in some cases inconsistent with each other.
For example, ULA data analysis used in the 2010 Launch Broad Area
Review report indicates that most suppliers are operating at or below
their minimum production rates and that at least 50 percent are
concerned about customer demand and long-term viability. However,
other ULA data contained in its briefing to us indicated no current
concern regarding the financial viability of its main suppliers,
stating that "98 percent of the ULA suppliers meet or exceed
sustainable financial and operational criteria in 2010 (92 percent in
2009)." The ULA briefing also shows that ULA/EELV business constitutes
15 percent or less of the total business base for 75 percent of ULA
suppliers who responded to the survey. ULA officials told us at no
time did DOD ask to review the survey source data or ULA analysis, and
ULA provided it to no one until we requested it for this review.
Cost or pricing data for the EELV program are largely unknown:
Under the new acquisition strategy, contracting officials may have
difficulty assessing fair and reasonable prices given the limited
availability of contractor and subcontractor cost or pricing data. The
EELV Should Cost Review indicates there are significant contractor
data and business system limitations that we believe should be
resolved before DOD makes a commitment to a long-term (block buy)
acquisition of launch vehicles. According to Defense Contract Audit
Agency (DCAA) reports, ULA proposals contain inadequate cost or
pricing data that make it difficult for DOD to assess the adequacy and
fairness of launch prices and the cost-effectiveness of launch
operations. DCAA has stated DOD should obtain additional data before
negotiating launch contracts to ensure ULA proposals are an acceptable
basis for contract negotiation. Despite historical challenges
obtaining cost or pricing data, senior Air Force officials recently
indicated they have confidence in their ability to obtain adequate
cost or pricing data to facilitate informed contract negotiations as
part of the new acquisition strategy. It is unclear whether this data
will be captured in advance of the expected release of the new
acquisition strategy later this year, or how it may be used to inform
the strategy or subsequent contract negotiations.
For over a decade, the EELV program has been unable to access
subcontractor cost and pricing data for hardware used on Delta IV
booster cores. In 2007, the Program Executive Officer for Space
authorized a waiver to Boeing for certified cost or pricing data for
104 of Boeing's major subcontractors and suppliers. The rationale for
this decision was based on Boeing's purchase of items from these
subcontractors and suppliers under a commercial contract, and that
certified cost or pricing data are not required for that type of
contract. The waiver covered the entire lot of items that had been
purchased by Boeing in 1998, comprising hardware such as engines,
graphite motors and guidance systems, to build 42 common booster
cores, as the prices negotiated under the large-quantity subcontracts
may not have been achievable by the government at the time. At that
time, industry experts expected a high commercial demand for launch
vehicles, and it was assumed by the program that the lot would be used
in a few years; Boeing's Decatur, Alabama facility was built with the
capacity to produce 40 common booster cores per year. However, the
anticipated commercial market never materialized, and the EELV program
is still using hardware from Boeing's first lot buy.
Without certified cost or pricing data on the booster cores, which
constitute the major component on a launch vehicle, DCAA officials
believe that program contracting officials have an inadequate basis on
which to negotiate launch contracts. In fact, DCAA audits consistently
find ULA proposals and estimating techniques inadequate for evaluation
and audit, and recommend deferring contract negotiations until the
data are made available. The recent EELV Should Cost Review found that
ULA business systems, including purchasing, accounting, and estimating
systems are immature, making it difficult for DCAA to validate cost
data. ULA's business systems have "weak auditable records with high
error rates," it says, causing reduced confidence and unreliability in
ULA cost estimates. It further states that since ULA's formation,
every audit report of EELV pricing DCAA issued has contained an
adverse opinion, with unsupported or questioned costs ranging from 20-
60 percent. Program contracting officials say that while this data
would be beneficial, they are able to adequately estimate prices
within the Air Force, which is how they can obtain clearance from
their leadership to proceed with contract negotiations despite DCAA
adverse opinions. ULA business systems are currently under review by
DCAA and DCMA, and officials estimate these reviews will complete by
the end of calendar year 2011.
DOD has little insight into mission assurance costs and activities,
but plans to incentivize the contractor to gain efficiencies:
DOD officials believe that mission assurance is the most important
contributing factor to launch mission success, but the costs,
sufficiency or excess of these activities have not been fully
assessed, and current contracts with ULA may not motivate the
contractor to operate efficiently. Launch studies point to major
launch failures in the late 1990s that are largely thought to be the
result of inadequate mission assurance. Since then, the Air Force and
NRO have taken steps to enhance mission assurance and government
oversight. DOD launch studies credit enhanced mission assurance
activities with the unprecedented launch successes in the EELV
program, but have thus far been unable to quantify mission assurance
costs, or pinpoint the sufficiency of mission assurance activities,
limiting DOD's ability to gauge the sufficiency or surplus of its
investment in mission assurance activities. For example,
* A 2007 Booz Allen Hamilton report created a definition of launch
mission assurance, the basis of which is still in use, but the report
was not able to quantify specific costs that comprise launch vehicle
mission assurance, relying instead on percentages of total launch
vehicle costs and averages to give a general picture.[Footnote 15]
* The 2010 Broad Area Review was tasked in part with assessing the
effectiveness of launch vehicle mission assurance, but it did not
identify actual costs associated with mission assurance activities,
such as pre-launch readiness reviews or launch vehicles hardware and
software verification activities. This review supported maintaining
the current level of mission assurance, but did not attempt to assess
the sufficiency or surplus of current launch vehicle mission assurance
activities, stating only that, "the current process and resource
allocation…is producing the desired result."
* Mission assurance costs are not fully quantified in launch
contracts, either. According to the 2010 EELV Should Cost Review,
mission assurance activities are part of the same contract line item
number as mission integration activities like requirements analysis
and verification, even though they are not directly related. This
review also noted that under the contract structure at that time, ULA
was neither motivated nor incentivized to find efficiencies in its
operations, but Air Force officials told us they recently changed the
EELV launch infrastructure contract to incentivize ULA to deliver
mission success at a lower cost.
DOD officials maintain that mission assurance costs may not be
severable from the many launch activities in which they are
integrated, adding that the level of effort required to do so may far
outweigh the potential cost savings that may be identified in the
process. Also, recent launch studies have been unable to assess the
level of investment or execution of activities thought to be part of
the mission assurance process. Identifying the adequacy or excess of
these activities is increasingly important, however, as new launch
providers emerge who may be able to compete for EELV launches,
providing the government with an unprecedented opportunity to
incentivize efficiencies at ULA. Senior Air Force officials told us
they plan to include incentives in upcoming EELV contracts to motivate
ULA to identify ways to increase efficiency in its operations.
Incentivizing the contractor to find efficiencies in its own processes
while maintaining mission success, without prescribing the areas to
streamline, could allow DOD to effect cost savings while sustaining
the unprecedented and critical launch success in the EELV program.
Data on EELV engine costs are incomplete:
One of the primary drivers of rising launch cost estimates is the
escalating price of engines used on both Atlas V and Delta IV launch
vehicles, and while Air Force officials are undertaking efforts to
assess engine price increases, some data are still lacking, and it
remains unclear how this information will impact development of the
new acquisition strategy and future contract negotiations. Air Force
officials have recently begun pursuing explanations for engine price
increases from one EELV engine subcontractor, and expect to obtain
additional data before the new acquisition strategy is finalized. The
subcontractor presented Air Force officials with cost breakdown
information on the RL-10 upper stage engine, a version of which is
used on both Atlas V and Delta IV launch vehicles, that Air Force
officials say satisfied their request for information on that engine.
However, similar cost information on EELV main engines is not
available. For example, the EELV Should Cost Review indicates prices
for the RS-68 engine, the main engine used on Delta IV launch
vehicles, are expected to increase four-fold, but is unable to
attribute the rise in prices to specific and identifiable cost
increases. Air Force officials requested a cost breakdown on the RS-68
from the same subcontractor who provided cost data on the RL-10, but
the subcontractor has not yet provided adequate data, according to Air
Force officials. One reason for the lack of insight into engine costs
is that ULA buys engines under commercial subcontracts, which limit
the cost or pricing data available to the government. Additionally,
according to DOD officials, the Should Cost Review team was unable to
obtain detailed technical or cost data for the Russian RD-180 main
engines used on the Atlas V due to time constraints, though EELV
program officials say some cost data are available.
Further, uncertainty in NASA launch development programs like the
Constellation program could make EELV the primary customer for some
engines, resulting in the EELV program having to pay most labor and
infrastructure costs at engine production facilities. DOD cost
estimators suggest that when program decisions are finalized at NASA,
the price of EELV engines will stabilize and may decrease. For
example, if NASA pursues a program that uses the same engines as EELV,
the two programs might share labor and infrastructure costs, bringing
down the per-engine costs for EELV. However, DOD may lock in current
unstable EELV engine prices before it has collected and fully analyzed
the cost data it is pursuing, and before program decisions at NASA are
final. NASA is in the process of transitioning away from the
Constellation Program in FY 2011--which would have used the same RS-68
engines that are used on EELVs--to the new Space Launch System (SLS)
heavy-lift launch vehicle. NASA has yet to finalize plans for the SLS
design. NASA's decisions could have significant bearing on engine
prices for the EELV program.
Proposed block buy may generate oversupply:
DOD's new EELV acquisition strategy may commit the Air Force and NRO
to buy eight common booster cores--four each of the Atlas V and Delta
IV lines--each year over a five-year term, which may be more than it
needs. NASA launch needs are not factored into the proposed block buy,
and will be purchased independently of the new EELV acquisition
strategy. ULA says that eight cores per year is the minimum number it
needs to keep production steady and maintain mission success, but
historical launch rates indicate that DOD may face an oversupply at
that rate. The Air Force believes a "bow wave" of satellite payloads
will be ready for launch in the near future as satellites previously
delayed are nearing delivery and will require launch vehicles at an
unprecedented rate. Satellite delivery delays are often the primary
cause of launch delays, and Air Force officials expect most satellites
planned for launch in the next several years to launch on time. Many
of these satellites are clones of previously-built satellites, so the
satellite development risk (and thus risk of delayed delivery) is
significantly reduced, according to Air Force officials, providing
confidence that launches planned will launch on time.
Historically, according to the 2010 Launch Broad Area Review, only
about two-thirds of planned launches are launched in any given year;
in recent years that number has been closer to forty percent, as shown
in the table below. If DOD purchases eight cores per year and does not
use them all in that year, they may have to be stored. Table 2 shows
launch rates for fiscal years 2005 through 2009.
Table 2: Planned vs. Actual EELV Launches, Fiscal Years 2005-2009:
Missions Planned at Beginning of Fiscal Year:
Delta IV:
FY 05: 6;
FY 06: 7;
FY 07: 4;
FY 08: 5;
FY 09: 5.
Atlas V:
FY 05: 3;
FY 06: 4;
FY 07: 6;
FY 08: 9;
FY 09: 7.
Total:
FY 05: 9;
FY 06: 11;
FY 07: 10;
FY 08: 14;
FY 09: 12.
Missions Launched by End of Fiscal Year:
Delta IV:
FY 05: 1;
FY 06: 2;
FY 07: 1;
FY 08: 1;
FY 09: 2.
Atlas V:
FY 05: 3;
FY 06: 2;
FY 07: 2;
FY 08: 4;
FY 09: 3.
Total:
FY 05: 4;
FY 06: 4;
FY 07: 3;
FY 08: 5;
FY 09: 5.
Percent of Planned Missions Actually Launched:
FY 05: 44%;
FY 06: 36%;
FY 07: 30%;
FY 08: 36%;
FY 09: 42%.
Source: GAO analysis of Air Force data.
[End of table]
DCMA officials at the ULA Decatur production facility say that storing
cores for a year or more would likely require retooling and
retrograding, which would increase program costs. DOD may be able to
use stored booster cores in the following year, but under the proposed
five-year block buy, DOD will be committed to buying an additional
eight in each year of the block buy term, potentially creating its own
bow wave of cores produced, the use of which would continue to be
pushed out to subsequent years. The number of stored cores and the
length of time they need storing could accumulate if several years of
underutilization pass. Though Air Force officials say they have no
concerns about storing unused booster cores, DCMA technical officials
expressed concerns over long-term storage of booster cores as they
contain some limited life items that may have to be retested and
possibly replaced if stored long term. They said the main
consideration is the time required to bring the items up-to-date with
relevant engineering; changes which cannot be made while the booster
cores are stored. The new acquisition strategy will likely propose a
term of five years for the first block buy, but none of the recent
launch reports indicate that a five-year term is the optimum period in
which to achieve the goals of the new acquisition strategy. In fact,
officials at the EELV program office and ULA were at a loss to explain
the rationale behind the five-year term, though recent launch studies
assert a multiyear or long-term block buy would benefit the industrial
base. Further, DOD has not conducted a detailed risk analysis using
available knowledge of current planned launches for fiscal years 2013
to 2017--the time frame of the expected block buy--to determine the
likelihood that planned launches will actually launch, and that the
expected block buy of 40 booster cores will not exceed projected needs.
DOD criteria for new EELV-class launch vehicle providers are still in
development:
DOD plans to allow new companies to compete for EELV launches once
they can prove their launch vehicles are reliable, but DOD has yet to
finalize metrics that will allow these companies to demonstrate launch
vehicle reliability. Competition to provide government launch services
has historically been minimal in the EELV program; demand for launch
vehicles is low, and the EELV program continues to award sole-source
contracts to ULA. These contracts have precluded the need for new
entrant eligibility criteria, but while ULA is currently the only U.S.
company able to launch the full range of EELV-class[Footnote 16]
payloads, there are two other U.S. space launch companies that may be
capable in the near future.[Footnote 17] Representatives from these
companies say that they need a clear set of criteria from DOD as they
develop their launch vehicles, so they can be developed to meet
mission assurance needs and compete for EELV launches. The development
of such criteria could encourage additional launch companies to
participate in the EELV program, thereby increasing competition. The
subject of the March 2011 memorandum of understanding signed by the
Air Force, NRO and NASA was the stabilization of the current EELV
industrial base, while recognizing the need for future entrants, to
ensure long-term, viable, assured access to space. The three agencies
agreed to finalize criteria for new entrants to compete by July 31,
2011, but DOD officials indicate the effort to finalize the criteria
is still in process. It is expected at this time that the new
entrants' criteria will be issued separately from the new acquisition
strategy.
Conflicting goals within DOD of preserving the current program versus
expanding the launch provider pool for EELV may make it difficult for
the program office to finalize criteria for new entrant eligibility,
even though National Security Presidential Directive-40 outlined the
need for commercial competition in EELV in 2004. Some DOD officials
acknowledge competition offers potential benefits, but others believe
that competing for EELV launches will endanger the program's stability
and threaten its long history of launch successes. These officials
would rather increase the number, reliability, and quality of ULA
vehicles produced and launched, and believe that allowing competition
with ULA could decrease ULA's business and potentially hurt the
quality of its product, ultimately risking government satellites. On
the other hand, with launch prices likely to continue increasing, and
the emergence of potentially capable new entrants to the EELV market,
some DOD officials believe that competition could incentivize ULA to
find efficiencies and restrain prices while broadening the provider
pool and bolstering U.S. access to space. The new PEO for Space Launch
told us he believes competition will benefit the program, and intends
to work with ULA and potential competitors to incentivize cost
efficiencies while maintaining mission success. It is unclear whether
the new EELV acquisition strategy will introduce specific measures to
increase competition in the EELV program. Both DOD and ULA acknowledge
that launch prices may increase substantially in the coming years.
Addressing Other Issues Could Benefit Future Launch Acquisitions:
The studies we analyzed and our interviews with agency officials
identified broader issues about the federal government's use of launch
services that we believe should be addressed as DOD plans and
implements its next EELV acquisition, as well as in any future
acquisitions of launch services, particularly since these issues have
the potential to reduce costs and assure future requirements can be
met. For example:
* Coordination of launch acquisitions across federal agencies--like
the Air Force, NRO, and NASA--is limited, but recent launch studies
suggest it could potentially benefit the government as a whole in the
form of increased efficiencies and potential launch cost savings.
These three agencies recently committed to more closely coordinate
launch vehicle acquisition, but there is currently no strategy in
place to implement this coordination.
* Planning is needed for technology development focused on the next
generation of launch technologies, particularly with respect to
engines, for which the U.S. is partially reliant on foreign suppliers.
It is not clear whether DOD will integrate issues that cut across the
government into its upcoming EELV strategy, and officials indicate
that quantifying mission assurance costs is not part of the current
acquisition strategy development effort.
Increased U.S. government coordination of launch acquisitions may
yield efficiencies:
Multiple government entities, including DOD, NRO, and NASA buy launch
services each year from U.S. launch providers, but these agencies
typically acquire launch services with minimal formal coordination,
according to recent launch studies and DOD and NASA officials. The
Secretary of the Air Force, Director of the NRO, and the Administrator
of NASA recently signed an agreement formalizing their commitment to
more closely coordinate launch vehicle acquisitions, but according to
DOD and NASA officials, the details of how it will be implemented are
still undecided.
The EELV Should Cost Review said increased coordination and
information sharing between the Air Force, NRO, and NASA, for example,
and within the Air Force itself, presented opportunities for cost
savings by avoiding fees on items ULA buys for the program office
(known as pass-through fees), and implementing process efficiencies in
launch activities. According to the EELV Should Cost Review, ULA
charges up to an 18 percent profit on top of engine prices and to act
as a broker for the program office on commodities like propellants
bought from other government agencies, like NASA and the Defense
Logistics Agency--costs the program could avoid if it were to
coordinate purchases directly from other agencies. The review also
recommends that the EELV program office develop stronger relationships
with other Air Force launch operations organizations so it can buy
launch and range support directly from them and avoid the pass-through
fees associated with buying through ULA. Some studies highlight
opportunities to increase efficiency through interagency information
sharing and coordination of launch mission assurance activities, like
hardware pedigree reviews.[Footnote 18]
Although launch acquisitions are not part of the launch scheduling
process, increased coordination among agencies that buy launch
services could also improve launch scheduling at the launch pads and
ranges. Recent launch studies point to inefficient launch scheduling
due in part to competing agency interests and reluctance to relinquish
launch slots until it is too late to reassign them. This is
problematic, because according to the 2010 Launch Broad Area Review,
"launch slots are a limited and critical asset and should be treated
as such." Despite the widespread call for increased coordination in
launch acquisitions in various launch studies and the acknowledged
need for collaboration by launching agencies, according to EELV
officials, the new EELV acquisition strategy may not present a
strategy for facilitating greater agency coordination.
Technology development may be needed to inform the next generation of
launch vehicles:
The EELV program currently relies on technology that dates back to the
1950s. While heritage technology is good from a launch vehicle
maturity standpoint, less expensive materials and more advanced
capability may be available. Also, the EELV program is dependent on
Russian RD-180 engines for its Atlas line of launch vehicles, which
according to the Launch Enterprise Transformation Study, is a
significant concern for policymakers. Although the EELV program is in
the sustainment phase of its lifecycle, and as such, receives minimal
research and development funding, recent national space policy and
launch studies point to a lack of investment in the future of the U.S.
launch industry, and indicate there are several areas, including
engines, where launch technology development may be needed.
* The 2010 National Space Policy of the United States of America
recognizes a need to continue technology development as it directs the
Secretary of Defense, with NASA, to sustain technology development for
the next generation of launch;
* A 2007 Acquisition Decision Memorandum issued by the Office of the
Under Secretary of Defense for Acquisition, Technology and Logistics
directs the Air Force to continue to pursue research and development
of a hydrocarbon engine to meet future space launch requirements; the
2010 Broad Area Review also indicates that developing a hydrocarbon
engine could address U.S. reliance on a foreign engine;
* The Launch Enterprise Transformation Study found that domestic
propulsion technology is lagging and suggests that to meet future
spacelift capability demands, the U.S. should consider developing a
new EELV-class engine; the study recommends establishing a full-scale
engine development program;[Footnote 19]
* The Resource Management Directive 700 study report recommended
investing in next-generation of launch to facilitate lower cost,
reliable EELV replacement when the program ends in 2030;
* A 2010 Air Force Scientific Advisory Board study determined that
investment in future launch systems is needed, recommending evolving
current EELV capabilities and investing in new vehicle concepts.
Several of the studies, and the 2010 NASA Authorization Act,[Footnote
20] discuss developing reusable launch vehicles, which could also
influence future acquisitions. A 2010 Air Force Science Advisory Board
study on the future of Air Force launch systems also noted that while
solid rocket motors would likely be part of future strategic systems,
there is no ongoing technology development on them. It recommended the
Air Force pursue science and technology development efforts for
launch. While the 2011 Space Science and Technology Strategy--mandated
by the 2010 National Defense Authorization Act--calls for the
development of a national space science and technology strategy to
guide development of space technologies and presents short-and long-
term space access goals, it does not specify a direction for launch
technology development.[Footnote 21] Because technology development is
not typically part of a program's acquisition strategy, it may not be
included in the new EELV acquisition strategy. However, the future of
U.S. launch depends in part on next-generation technology, and
decision-makers could benefit from early insight into the path forward
for launch.
Conclusions:
The EELV program serves a vital mission of placing critical national
security and civilian satellites in their required orbits. It is also
on the brink of major changes. EELV is an important investment for the
government as the program executes national security space launches,
but recent contractor projections indicate significant price
increases. DOD needs to ensure it is taking the time it needs to
collect and assess sufficient information on which to base its new
acquisition strategy. DOD is taking steps to gain knowledge on the
best way forward for the program through ongoing data collection and
recent EELV studies, but its focus on finalizing the new strategy by
the end of this year may not allow for a full evaluation of the
information it is still collecting. Gaining sufficient knowledge to
make sound decisions before committing to an expensive long-term block
buy is essential to an acquisition of this magnitude. Considering that
the leading proposal for a new acquisition strategy may commit the
government to spending billions of dollars on a block buy covering at
least 5 years, it is imperative that DOD continue to obtain and use
all available information to make decisions in its long-term interests
and in the interests of the American taxpayer.
Recommendations for Executive Action:
To gain a better understanding of the condition of the U.S. space
launch industrial base, facilitate fair and reasonable launch contract
negotiations, ensure consistent grounds for evaluating launch
providers, and identify the best path forward for U.S. space launch
operations and technology development, we recommend the Secretary of
Defense take the following seven actions.
* Conduct an independent assessment of the health of the U.S. launch
industrial base, paying special attention to engine manufacturers,
* Reassess the block buy contract length given the additional
knowledge DOD is gaining as it finalizes its new acquisition strategy,
* Work closely with NASA to ensure DOD has sufficient knowledge of
NASA heavy-lift program decisions--given the potential bearing those
decisions could have on EELV engine prices--to facilitate DOD's
ability to negotiate EELV launch contract prices that maximize the
government's investment,
* Refrain from waiving FAR requirements for contractor and
subcontractor certified cost and pricing data as DOD finalizes its new
EELV acquisition strategy,
* Ensure launch mission assurance activities are sufficient and not
excessive, and identify ways to incentivize the prime contractor to
implement efficiencies without affecting mission success as DOD
develops a new contracting structure for the EELV program,
* Examine how broader launch issues, such as greater coordination
across federal agencies, can be factored into future launch
acquisitions to increase efficiencies and cost savings, and:
* Develop a science and technology plan for improving and evolving
launch technologies. This plan should link to the broader space
science and technology plans mandated by the 2010 National Defense and
NASA Authorization Acts.
Agency Comments and Our Evaluation:
We provided a draft copy of this report to the Secretary of Defense
for comment in May 2011. In written comments on the draft report, DOD
concurred with one of our seven recommendations, partially concurred
with four, and nonconcurred with two. In July 2011, following the
formal agency comment period, DOD officials requested the opportunity
to provide additional documentation, follow-up interviews, and various
relevant DOD, contractor, and subcontractor briefings to us that they
believed directly addressed some of the findings and recommendations
identified in the draft report. We agreed to review the additional
information, but because this information was provided to us after our
review was completed, we did not fully evaluate or assess the data or
documentation provided. Based on our review of the additional
information from DOD and NASA, we included relevant information
throughout the report as appropriate, revised the report title, and
clarified four of the seven recommendations to reflect efforts
currently underway at both agencies.
In a written response to the revised draft dated September 12, 2011,
DOD concurred with six of our seven recommendations, and partially
concurred with one. DOD partially concurred with our recommendation
that the Secretary of Defense reassess the block buy contract length
given the additional knowledge DOD is gaining as it finalizes its new
EELV acquisition strategy. DOD indicated that it intends to use all
the information being collected to develop an acquisition strategy for
EELV, and will balance contractual decisions such as the quantity
purchased and the length of the contract, with other factors such as
price, operational requirements and the potential for new launch
providers to compete.
DOD’s written comments are reprinted in appendix II.
As agreed with your office, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the report date. At that time, we will send copies to the
Secretary of Defense, the appropriate congressional committees and other
interested parties. In addition, the report will be available at no
charge on GAO's Web site at [hyperlink, http://www.gao.gov]. If you
have any questions about this report, please contact me at (202)
512-4841 or chaplainc@gao.gov. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last
page of this letter. Key contributors to this report are provided in
appendix III.
Signed by:
Cristina T. Chaplain:
Director:
Acquisition and Sourcing Management:
[End of section]
Appendix I: Scope and Methodology:
To determine whether DOD has the knowledge it needs to develop a new
Evolved Expendable Launch Vehicle (EELV) acquisition strategy, we
reviewed and analyzed information contained in five recent DOD-
sponsored launch studies including the 2010 Launch Broad Area and EELV
Should Cost Reviews, Launch Enterprise Transformation and Resource
Management Directive 700 Fiscal Year 2010 Launch studies, and the EELV
Tiger Team study. We assessed the ULA-conducted 2009-2010 supplier
survey used by the government to gauge the health of the U.S.
industrial base by reviewing the survey questionnaire, comparing
methods of administering the survey and obtaining responses with
established survey writing guidance, comparing summary data to the
questions asked, and interviewing and obtaining information and
summary data from the surveyors.[Footnote 22] DOD officials provided
additional information on the acquisition strategy development effort
during the report draft agency comment period, including briefings
from three engine subcontractors they obtained as part of their
assessment of the space launch industrial base in April 2010, but did
not provide the briefings or results to us within the audit time
frame. As a result, we were unable to evaluate the methods or
conclusions drawn from these efforts as part of this review, though we
incorporated relevant information as appropriate in the report that we
obtained from these documents, and through multiple discussions with
senior Air Force and DOD personnel from June to September 2011.
In reviewing the 2010 Launch Broad Area Review, we interviewed people
who had indirect involvement in the report, and discussed the report's
findings and methodology with them. In reviewing the 2010 EELV Should
Cost Review, we discussed the report's methodology, findings, and data
sources with the report's leader and several study participants. In
reviewing the Resource Management Directive Study, we met with some of
the study leaders and participants and discussed with them the study's
methodology and findings. In reviewing the Tiger Team study, we
interviewed DOD officials and received substantive oral briefings from
the study co-leader and participants, but we did not receive copies of
the briefings or supporting documentation with sufficient time to
review them during the course of our work.
To identify other important launch issues with potential bearing on
current and future government launch acquisitions, we reviewed the DOD
launch studies listed above and interviewed study leaders or
participants in three of the five studies; we analyzed historical
launch data and expected launch vehicle demand; reviewed other
relevant government and industry reports; interviewed DOD, NASA, and
contractor officials; and reviewed information from NRO.
We interviewed officials in Washington, D.C., at the Offices of the
Under Secretary of Defense for Acquisition, Technology and Logistics;
and the Office of the Secretary of Defense, Cost Assessment and
Program Evaluation. We also reviewed and analyzed documents from and
interviewed officials at the Office of the Assistant Secretary of
Defense for Networks and Information Integration; Office of the
Assistant Secretary of the Air Force for Acquisitions; and at the
Orbital Sciences Corporation. In addition, we reviewed and analyzed
documents from and interviewed officials at Air Force Space Command;
the Launch and Range Systems Directorate, Air Force Space and Missile
Systems Center, Los Angeles Air Force Base, California; Defense
Contract Audit Agency, Centennial, Colorado; Defense Contract
Management Agency, Littleton, Colorado, and Decatur, Alabama; National
Aeronautics and Space Administration, Washington, D.C. and Cape
Canaveral Air Force Station, Florida; National Reconnaissance Office,
The Aerospace Corporation, and Space Exploration Technologies,
Hawthorne, California; National Security Space Office, Washington,
D.C. and Fairfax, Virginia; and United Launch Alliance, Centennial,
Colorado and Decatur, Alabama.
[End of section]
Appendix II: Comments from the Department of Defense:
Office Of The Assistant Secretary Of Defense:
Networks And Information Integration:
6000 Defense Pentagon:
Washington, DC 20301-6000:
September 12, 2011:
Ms. Cristina Chaplain:
Director, Acquisition and Sourcing Management:
Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Ms. Chaplain:
This is the Department of Defense (DoD) response to the GAO Draft
Report GAO-11-641, "Evolved Expendable Launch Vehicle: DoD Needs to
Ensure New Acquisition Strategy is Based on Sufficient Information,"
dated May 31, 2011(GA0 Code 120933). The Department offers the
following response to the recommendations expressed in the GAO report.
Recommendation 1: The GAO recommends that the Secretary of Defense
conduct an independent assessment of the health of the U.S. launch
industrial base paying special attention to engine manufacturers.
DoD Response: The DoD concurs with this recommendation. The Department
recently completed the Solid Rocket Motor Industrial Base study and is
currently executing a study on liquid rocket engines which is expected
to be completed in 2011. The Solid Rocket Motor Industrial Base study
report is located at [hyperlink,
http://www.acq.osd.mil/mibp/studies.shtml] under "studies."
Furthermore, the DoD is conducting a sector-by-sector, tier-by-tier
evaluation of the industrial base including not only space but other
industrial sectors as well. This evaluation will provide a
comprehensive understanding of not only the prime contractors but the
subcontractors and suppliers that contribute vital components,
subsystems, and services. Initial space sector results are expected by
the end of 2011. All of these studies are led by the Office of the Under
Secretary of Defense Acquisition, Technology and Logistics
(USD(AT&L)), Manufacturing and Industrial Base Policy.
Recommendation 2: The GAO recommends that the Secretary of Defense
reassess the block buy contract length given the additional knowledge
DoD is gaining as it finalizes its new acquisition strategy.
DoD Response: The DoD partially concurs with this recommendation. The
DoD will use all the information being collected to determine an
appropriate, yet to be developed, acquisition strategy for Evolved
Expendable Launch Vehicle (EELV). The decision on specific contractual
quantity and period of commitment will be balanced among price,
operational requirements, budget realities and the potential for new
entrant competition.
Recommendation 3: The GAO recommends that the Secretary of Defense
work closely with NASA to ensure DoD has sufficient knowledge of NASA
heavy-lift program decisions--given the potential bearing those
decisions could have on EELV engine prices--to facilitate
DoD's ability to negotiate EELV launch contract prices that maximize
the government's investment.
DoD Response: The DoD concurs with this recommendation and will
continue to work with NASA to ensure full understanding of the
potential bearing NASA program decisions may have on sustaining the
launch industrial base.
Recommendation 4: The GAO recommends that the Secretary of Defense
refrain from waiving Federal Acquisition Regulation (FAR) requirements
for contractor and subcontractor certified cost and pricing data as
DoD finalizes its new EELV acquisition strategy.
DoD Response: The DoD concurs and agrees that certified cost and
pricing is an important aspect of confidence in the contractor's
proposals and will refrain from waiving FAR requirements as
appropriate. However, there are cases where it is impractical. For
example, it is not likely the prime contractor or the DOD will be able
to obtain certified cost or pricing data for the Atlas V RD-180
engines which are purchased from a Russian company.
Recommendation 5: The GAO recommends that the Secretary of Defense
ensure launch mission assurance activities are sufficient and not
excessive, and identify ways to incentivize the prime contractor to
implement efficiencies without affecting mission success as DoD
develops a new contracting structure for the EELV program.
DoD Response: The DoD concurs with this recommendation. The DoD has
already taken steps to more effectively incentivize the contractor to
gain efficiencies in launch capability by moving from a cost-plus
award fee to a cost-plus incentive fee contract, where the contractor
earns fee based on cost reductions below the negotiated target. The
DoD will continue to look at other ways to incentivize efficiencies
without affecting mission success.
Recommendation 6: The GAO recommends that the Secretary of Defense
examine how broader launch issues, such as greater coordination across
federal agencies, can be factored into future launch acquisitions to
increase efficiencies and cost savings.
DoD Response: The DoD concurs with this recommendation. The Department
continues to monitor and assess the overall domestic and international
launch market and take into consideration trends and capabilities as
they evolve.
Recommendation 7: The GAO recommends that the Secretary of Defense
develop a science and technology plan for improving and evolving
launch technologies. This plan should link to the broader space
science and technology plans mandated by the 2010 National Defense and
NASA Authorization Acts.
DoD Response: The DoD concurs with this recommendation. A vibrant
Science and Technology (S&T) plan is key to the long range technology
investment for space access, and the Department is currently
developing an S&T plan for utilizing new and improved concepts.
The Department appreciates the opportunity to respond to the report
prior to publication. If there are any questions, please contact Ms.
Ruth Moser, ruth.moser@osd.mil, 703-607-0401.
Sincerely,
Signed by:
Dr. Ronald C. Jost:
Deputy Assistant Secretary of Defense (C3, Space and Spectrum):
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
Cristina T. Chaplain, (202) 512-4841 or chaplainc@gao.gov:
Staff Acknowledgments:
Key contributors to this report were Art Gallegos, Assistant Director;
Claire Buck; Laura Hook; John Krump, Sigrid McGinty, Carol Petersen,
and Bob Swierczek.
[End of section]
Footnotes:
[1] GAO, Program Evaluation and Methodology Division: Developing and
Using Questionnaires, [hyperlink,
http://www.gao.gov/products/GAO/PEMD-10.1.7] (Washington, D.C.: Oct.1,
1993).
[2] The Atlas V heavy lift vehicle is neither fully designed nor built.
[3] Under the FAR, the government typically has little insight into a
contractor's costs since contracting officers cannot require cost or
pricing data when the contracting officer determines, among other
things, that prices agreed upon are based upon adequate price
competition or when a commercial item is being acquired. FAR 15.403-
1(b).
[4] In July 2011, the EELV program awarded a Launch Capability
contract as a cost-plus incentive fee contract. Air Force officials
stated the contract includes a mission performance incentive plan and
that the change in contract type is intended to incentivize ULA to
deliver mission success at a lower cost.
[5] With respect to government contracts, a novation agreement is a
legal instrument executed by the contractor (transferor), successor in
interest (transferee), and government, and by which, among other
things, the transferor guarantees performance of the contract, the
transferee assumes all obligations under the contract, and the
government recognizes the transfer of the contract and related assets.
FAR 2.101.
[6] Typically, major defense acquisition programs in the production
phase achieve an operational capability that meets mission needs; the
sustainment phase begins when the acquired weapons or automated
information systems have been fielded or deployed. In this phase, DOD
oversight is normally reduced and program emphasis is on activities
such as supply, maintenance, and transportation.
[7] GAO, Space Acquisitions: Uncertainties in the Evolved Expendable
Launch Vehicle Program Pose Management and Oversight Challenges,
[hyperlink, http://www.gao.gov/products/GAO-08-1039] (Washington,
D.C.: Sept. 26, 2008).
[8] The booster core is the main body of a launch vehicle. In the EELV
program, common booster cores are used to build all of the Atlas V and
Delta IV launch vehicles. Medium and intermediate launch vehicles use
one core each, while the Delta IV Heavy launch vehicle requires three.
[9] Institute for Defense Analyses is a federally funded research and
development center (FFRDC). FFRDCs are unique independent nonprofit
entities sponsored and funded by the government to meet specific long-
term technical needs that cannot be met by existing in-house or
contractor resources.
[10] Industry and DOD studies describe launch mission assurance as the
comprehensive collection of activities undertaken throughout the
lifecycle of a launch vehicle development program and through launch
to assure success and safety.
[11] Should-cost reviews are a specialized form of cost analysis.
These reviews evaluate the economy and efficiency of the contractor's
existing work force, methods, materials, equipment, real property,
operating systems, and management. The objective of should-cost
reviews is to promote both short and long-range improvements in the
contractor's efficiency in order to reduce the cost of performance of
government contracts.
[12] The three engine subcontractors questioned in April 2010 included
Aerojet, Alliant Techsystems, Inc., and Pratt & Whitney Rocketdyne,
each of which provides engines or rockets for use on EELVs.
[13] ULA sent its initial survey in 2009, and then sent another
version of the same survey to suppliers in March 2010 to capture
additional detail. The 2009 survey had an 82 percent response rate (45
of 51 suppliers), and the follow-up to that survey sent in March 2010
received about a 55 percent response rate (29 of 51 suppliers).
Because data used in the cited studies constitute the combined data
from both the 2009 and 2010 survey responses, for presentation
purposes, we refer in this report to the 2009 survey and the 2010
follow-up as the 2009-2010 survey.
[14] In other questions, ULA also asked respondents to rank various
risks and did not provide any potential responses. However, such open-
ended questions do not help respondents consider a comprehensive range
of possible answers; rather they depend on the respondent's unaided
recall. Moreover, the mere rank ordering of risks conveys nothing
about their magnitude or the degree to which they can be managed and
ULA did not include any questions that addressed these issues.
[15] Booz Allen Hamilton, Launch Mission Assurance Assessment Study
(April 2007). This study was commissioned by the Air Force and
National Reconnaissance Office. The study defined launch vehicle
mission assurance as: "a technical and management process rigorously,
continuously, and iteratively employed over the life-cycle of a launch
system to maximize mission success, ahead of cost and schedule."
According to the 2010 Should Cost Review, however, "nearly every
organization and person involved has a different definition of mission
assurance."
[16] EELV-class payloads range from 6,000 to 28,000 pounds to
Geosynchronous Transfer Orbit. They are divided into intermediate
(6,000-18,000 pounds to GTO), and heavy (18,000-28,000 pounds to GTO)
classes. Medium class launches range from 2,500-6,000 pounds to GTO.
[17] The two space launch companies are Space Exploration
Technologies, Inc. (also known as SpaceX), and Orbital Sciences
Corporation.
[18] Pedigree reviews are vehicle and component data packages to
ensure that the subject articles have been manufactured and tested in
accordance with approved processes.
[19] The report specifically advocates a liquid oxygen/hydrocarbon
engine, as due to lower cost, better operability, and its significant
advantages over other liquid propulsion systems.
[20] National Aeronautics and Space Administration Authorization Act
of 2010, Pub. L. No. 111-267, § 802(c).
[21] National Defense Authorization Act for Fiscal Year 2010, Pub. L.
No. 111-84, § 911 (2009).
[22] GAO, Program Evaluation and Methodology Division: Developing and
Using Questionnaires, [hyperlink,
http://www.gao.gov/products/GAO/PEMD-10.1.7] (Washington, D.C.: Oct.1,
1993).
[End of section]
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